IntroductionDynomine Company has currently 20 shareholders. Each shareholder originally contributed $250,000 to the company in exchange for the issue of 250,000 $1 shares. At the time of issuing the shares, Dynomine had no need to, and did not, use a Product Disclosure statement. At present Dynomine only has $1M left in the bank as the other $4M has been spent on administrative expenses and the costs associated with the mining leases. The issue of disclosing the information to investorsThe policy that underlies the corporate and securities legislation in Australia is that corporations will be required to disclose information about the business and financial structure to the public.
Investors will have to deal with those corporations in such a way that the interest is protected. The fundamental aim of the fundraising will be to give clear and correct information by publication of prospectus. If prospectus is not published, then any other disclosure document should be there and this is being done to ensure that investors can make informed and rational decision about the initial investments in a corporation. The mandatory disclosure provision in Australia has been taken from the United Kingdom. There are arguments for and against disclosure. The arguments that has been said in support for disclosure requirement is that investor protection argument should be done to protect investors from making investment on the basis of fraudulent corporate praticse. The other argument that has been done in support of investor market is that the investors will not be feeling threat about securities and security market.
Mandatory disclosure will be good for the company in as it can act as disinfectant in the sense that getting the information to be published will be helping the Dynomine Company.
That will give the impression that Dynomine Company will not be doing anything to mislead investors. The investment decisions are efficient in such a sense that investors are more likely to use their resources to productive use. The investors will be given level playing field in such a way that all investors will be starting from the same base. The disclosure should be done in such a way that the consumer legislation is protected. The argument that can be said against this disclosure method is that there is no empirical rejoinder that has proved that not disclosing information has led to greater incidence of fraud from the side of corporation to investors.
The main aim of the disclosure rule is to ensure that every investor will be having the same level of playing field. The corporation should think of disclosure as public good and that has not to be forgotten. The investors will be given access to information and can use it any way they want and that is called the free rider problem. The opposite argument for this company is that there is no need to disclose information can benefit the rivals in the market and the investors who are not interested in investing. The company can take the risk of having investor disaffection than giving more information to the investors.
That does not mean keeping back the information will not be benefitting the long term advantage of the company and that has to be negated. The best advantage of this company will be to make opening of information.